The Ultimate Guide for the Active or Passive Investor Book Launch with Dan Handford

The goal is to have this fund be active for about three years, which we believe is a good timeframe for us to be able to invest in some of these different operations and then exit as the market starts to turn around over the next one to three years.

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host, Chris Larson. If you haven't yet, get a copy of our book for free at our website, nextlevelincome.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in. On today's show, we have Dan Hanford. Dan is one of the managing partners with passiveinvesting.com which is a national passive real estate investing firm based in the Carolinas. He has led his real estate syndication company to over 2 billion in acquisitions, 1.4 billion in assets under management in five different asset classes, and just over 1800 investors active in those assets. Dan and his wife are also passive investors in 80, more than 85 different passive real estate syndications comprising over 10,000 doors located in the Carolinas, Georgia, Tennessee, Texas, Florida, Maryland, Virginia, Arkansas, Indiana and Idaho with 19 different operators. Prior to getting started investing in real estate, Dan has had an extensive background in starting multiple seven figure businesses from scratch, including a large group of non surgical orthopedic medical clinics located in South Carolina. And today we're going to talk about his new book with his partner, Danny. Apartment Syndication the Ultimate Guide for the Active or Passive Investor. Dan, welcome to the show, my friend.

Thanks, Chris. Glad to be back.

Yeah, yeah. It's always good to have you here. We got a lot of different things we're going to talk about today. We're going to talk about your book a little bit later. I've been waiting for this thing with such anticipation, so I'm excited for you to share that with the audience. But for those of you who aren't familiar with you, a lot of people know you as one of my partners. We've done, oh, I think about three dozen deals together now. But before real estate, you had a whole nother business career. So if you don't mind sharing a little bit about that with the audience, we'd love to hear that.

Sure, sure. So I'm a chiropractor by trade, so when I first got out of chiropractic school, I wanted to, you know, not work for another chiropractor. I wanted to start on my out on my own. And my wife's uncle, I actually worked for him for several years before I actually went into the chiropractic program to work to get my doctorate. And I actually have a degree from the University of South Carolina. Go Gamecocks. And, and so, you know, that's a degree in biology. And so it fit really well to kind of, you know, go over into the chiropractic program from that biology degree and having all the prerequisites and things like that. And while I was in chiropractic school, I also started one of my very first businesses that was very successful, which was a company that, where we sold anatomical models like skeletons and skulls and brains and hearts and things like that to colleges, doctors offices, universities, and even student students. And that's how I got started was, was selling to students because in the chiropractic program everybody needed a spine model. And so I went around the classrooms and, and sold 80 in the first week and like another 40 over the next two weeks later. And it opened me up to be able to sell even more of their products from manufacturer. And the students were getting a great discount because it was like $109 in the bookstore store. I was able to source it for $42.48 and selling it for, for $70. And and so that was what really opened me up to be able to start that business. And I basically worked my way through call through college with that particular business and was able to start my practice when I got out 100% debt free. And even to this day we have those clinics and there's, they're all 100% debt free. We're actually in the process of exiting those right now. So hopefully we'll be those sold off in the next probably 30 to 60 days or so, which is, it's kind of a bittersweet, you know, moment with that because they kind of, we got it to the point where we can step out and run on its own and start the real estate business and really take us to the next level. But that original business, when we started to grow, created a problem for us. It created a tax problem where, you know, we're not, we're not paying, you know, just, you know, six figure checks once a year. At the end of the year. It's like, you know, when you own your own business, you got to pay these quarterly estimated payments. So we're writing these large six figure checks every quarter. And it just very frustrating and very hard to stomach because you're sitting there working all year long, long hours and then you're having to write these large six figure checks to the government. And just I was like, there's got to be a different way, right? And so that's when we started doing research in real estate and getting the depreciation benefit and being able to offset some of those taxes and started to. And when we first got into the real estate space, we started doing some, some passive kind of LP limited partner investments with some other groups and then hired a mentor, started doing it on our own and then merged with, with Danny randazzo and started passiveinvesting.com very early on and have grown it to where we are today. And you know, definitely enjoy the partnership that we have with you. And your group has been great, it's been a great ride and I want to continue that ride and continue to, you know, provide a lot of opportunities for our investors and together as a whole to be able to, you know, grow their wealth alongside our wealth. And that's kind of an ultimate goal for us. And you know, we've since 2018 we've acquired a little over 2 billion in assets and right now we're sitting at about a billion and a half right now on the books under management. And assets under management I think is great. But I think the real tall tale sign of really the amount of trust that investors have in you is how much equity do you have under management. And so right now we're sitting at right, about a little over 650 million in equity under management, which I think is a really good number to look at, to see, you know, where we've been since 2018, where we are today and how much trust people have in us. You know, I just sit back and think about that over half a billion doll dollars that we actually are managing right now. And people ask me all the time like, how do you sleep well at night and doing that? And I'm like, well, you know, we, we have very strict criteria and we are only going to get ourselves into an asset where we have a very high confidence that you know, our money is going to grow and that our investors money is going to grow and we're going to have a lot, we're going to have some great long term success with that particular asset. And so we, we sleep really well at night. Like I literally don't stay up at night now. I have lost a few nights of sleep lately because of other operators that have had problems. I was seeing large swaths of capital just immediately be Wiped out when they get foreclosed on. And I lose sleepover because I'm like, I, I'm frustrated for those, those investors, but I'm like, what was it that caused that operator to get that way? And so I had to go down this like, rabbit trail trying to investigate. And a lot of times it's, it's really just the operator that is not, not performing the property, you know, very well. And you go and look at some of the reviews on the property and it's just like one after the other, you know, kind of a, you know, a slumlord style type, you know, management style, which good when you're trying to manage residents and, and treating them like, like, like real people, you know. So anyway, I'm kind of rambling on a little bit here, but that's kind of a little bit about my background there, Chris, and, and where we've been and where we are today.

No, thank you for that. And yeah, if you haven't go, you got to go back and listen to the first episode. Dan was on our first season back in 2019, and he shares a little bit about stories selling, selling those skeletons to African American government. I think it was, wasn't it? Yep.

Yeah, it was a Nigeria.

Yeah, that's what I thought it was. So, yeah, you can go back and check out the first episode there and you can see my old, my old partner Caleb, my late partner, I should say, which, which you got to know Caleb fairly well as well, Dan. But yeah, this, I mean that, that was one of the, you know, this, this year's had a lot of ups and downs. That was a down for me losing Caleb. And actually I was with you the, the day I found out about that. But this year's been up and down for a lot of people. You're talking about different operators. You know, we started, you know, just over a year ago with interest rates, you know, below 4% for, you know, multifamily properties. And as cap rates compressed over the past, you know, five years, you know, a lot of these operators got away with a lot. They didn't have to operate really well. They could have bad reviews. They could have operating teams that, you know, didn't, didn't do a fantastic job. And it kind of hidden a lot of these inefficiencies or, you know, areas that, that, you know, might not have been going well. So now, as they say, when the tide goes out, you see who's not wearing, you know, any clothes. What have, what have we seen in the multifamily space specifically, you know, over the last two years. And you know, is it, is it regional, is it national? What are some of the statistics that you're seeing out there?

Yeah, so as far as, when it comes to the, the, the, the interest rate, it's right, you know, we're sitting right now right about 18 month mark of when all these things, when they started, when the Fed started playing their games. Right. And started increasing the rate. And that's where we started to see in the multi family space. Not just multi family, we're talking about multi fan right now. But you know, broadly speaking it's, it's all asset classes have been affected. You know, any, any, any new, you know, asset that had floating rate rate debt on it is impacted. And I would actually say that some of these assets that are not in multifamily are, are probably in more of a challenging spot because a lot of those, I was reading this spaces. Yeah, a lot of those spaces, even if they had floating rate debt, they didn't, the lenders didn't require rate caps. And so these rate caps are usually required by lenders because they want to mitigate that risk as well on that downside. And so a lot of times they'll, they'll require that.

For the audience, what is a rate cap? Just so audience understands they haven't heard that term before.

Yeah, it's a good question. So you know, when you go to a bank and let's just kind of say you wanted to buy a single family home right. Now they don't usually buy rate caps and single family homes. But just to give you an example, you go to the bank and they give you a loan, they say, okay, we're going to have this, this rate be floating. And maybe it's like an arm, like an adjustable rate mortgage.

Right.

And they're going to basically adjust it based on the fluctuations in the, in the markets where it's, whether it's. In the past, it used to be based on, you know, or prime or you know, things like that. In the multifamily space, it's based off of a new one called sofr. And don't, don't ask me to say what that SOFR is, but it's so F R. It's a long acronym, but that's what they call it, sofr. But that SOFA rate is the kind of the benchmark rate that the 30 days, you know, term SOFR is a benchmark rate that a lot of lenders will use to be able to set their floating rates and it actually is a good thing because when you're in a, in a market where we, where we work were two years ago or 18 months ago, it was great because you could, you can get some, some, some good solid debt and have it not have to come to the table with as much down or debt on the down payment. So there was a lower amount of equity that you had to bring to the table. And so it made it a lot easier to be able to acquire and to mitigate the risk of that rate going too high where you can't afford it. Where we are in right now, you buy what is called an interest rate cap. Basically it says, okay, if your rate is, say, you know, so for plus, you know, three basis points or 3.5% on top of SOFR, we're going to basically say that we'll put a interest rate cap on that for say 2%. So you're maxing your rate out like you know, 5% or 5 and a half percent. So even if the rates do, do go and they float above five and a half percent, you don't have to pay that overage. Matter of fact, that policy, it's almost like an insurance policy that you're buying. And they're basically saying, yeah, that's, that's the best way to think about it is like if it, if, if for some reason the rates go above this, you will be, we will basically pay that additional overage for you to the bank. And we actually just got a report from our director of capital markets, you know, Ed Gilmer, who works with us, which you know him very well as well. And he sent us a report just, I think it was last week, I believe, and he sends us regular reports about our portfolio. But one of the things that he sent us was how much the, the insurance companies are now paying out aggregately as an aggregate every month on our portfolio. And it's just under $2 million. I think it was right around like $1.7 million that last month they paid out in additional overages on interest payments because we have those interest rate caps, otherwise we'd have to be footing that bill.

Right.

And so that interest rate cap mitigates the risk of that floating rate getting and getting too high.

Now that's a, that's interesting. And yeah, so if I put a link here in the show notes, it's the secured overnight financing rate and that, that is largely replaced Libor, correct. In terms of a lot of these, these floating rate loans. Now I know when you first came on the show, you had the seven red flags for investors when they were investing with an operator. You've actually added an 8 flag revolving around this specific talking point, right?

Yep. Yeah. And the reason why I added is because I, I ignorantly assumed that most operators did that. Right. Or even all operators did that.

Yeah.

And I had an investor last year when the Fed started increasing their rates that they called me up and they said, Dan, what do I do? Like I haven't invested with this operator. And they, I hear this person said, I thought that they actually were putting an interest rate cap on here, but I guess I didn't ask the right questions in the beginning. And they didn't because it was too costly for them to get it. And now we can't afford the debt payments and so they're raising more capital by doing a capital call from us to be able to afford to continue to keep this property. And I was like, well, I mean, honestly, there's not really much you can do. Like you can either can, if you think the asset is a good solid asset, you can do the capital call to make sure you can continue to keep it afloat. Or if it's not a very good asset, you know, it's probably not a good idea to put, you know, good money after bad, if you will. So it's one of those things where it's, when I heard that story, I started going into a deep dive to figure out like what kind of a systemic problem is this? And I would say from my research, probably closer to the 80, 90% of people do put the interest rate caps in place. So it's, and it's a good thing. And a lot of times, or most of the time the lenders require, like I said earlier, but there are some times where people try to negotiate out of that from the, with the lenders and not get the, the interest rate caps. They can put them in a hard position in a place like this. I mean, I, I honestly think that right now is a great time to do, to do floating rate debt because most people are gonna, are saying right now that we're at the top, we're at the peak. So if you put floating rate debt, the deal works with the current rates today, then it's only go down from here. Right. I mean, I know that the Fed right now is posturing that they might have another quarter or 50 basis point, you know, increase between now and the end of this year. But moving into 2024, they're, they're talking about, you know, doing some pretty, pretty good, you know, Decreases in rate reductions depending on the market conditions. I also think that with the new presidency and the new presidential election coming up, that there will be some economic changes that'll be for the, for the, for the better for us. And I think one of those things could be the, the interest rates being able to come back down.

Yeah, it's really interesting and you guys featured in, in your newsletter last month looking at the, the predictions of interest rates and where they go versus where they were predicted to go. It's really interesting to see that little like. Would you call it the hairy, the hairy curve and the, with all the different.

The hairy chart. Yeah.

Yeah, the hairy chart. Yeah. That was a good.

Had you ever seen that chart before?

Not. Not depicted like that. I had not. That was. That's pretty cool to check out. Yeah. So yeah, I was like, Harry Chart. I was like, what are they referring to? And then I, it dawned on me. So, Dan, when, you know, when we first met, when we first had you on the podcast now four years ago, which is. It's kind of crazy, right? Like we going back over four years now since.

It doesn't feel like four years though.

That's the reason. I know, I know. I remember. I remember eating sushi with you like it was yesterday. And so we both were primarily invested in apartments and we're doing deals in the apartment space. But since then the portfolio has grown, the asset classes have grown. Can you share a little bit about why that you've expanded outside of the apartments and what some of your favorite asset classes are going forward today?

Yeah, so when we first started, like you said, we were all in on multifamily and we're still today, the majority of our portfolio, about 1.1 billion, is in multifamily. So we still really, really like multifamily fam. And I would say of all the asset classes, that's still my favorite. There's a lot of risk mitigation factors and risk reduction and, and growth opportunities. I still would say that multifamily is my number one asset class. Oh yes. And I think that we go back, back when we first got started, we did all multifamily. And after about two years we started hearing some comments from our investors of like, hey, is it, is it, is it possible that maybe you guys look at some other alternative asset classes? Because we like the way you communicate, we like you, how you manage things. And we want. It'd be before we go look for another operator to invest in. Is that something that you guys would do and so that's when we first started, you know, trying to do look at adding an additional asset class which the first one was self storage. And then right after Self storage we decided to add on Hotels and then right after Hotels we decided to launch our express car wash brand. And in the mix of all of that and actually in 2020 we launched our debt fund as well. And so there's been some great opportunities for our investors to be able to diversify their portfolio into assets. And if I was going to say which one I'm the most excited about right now, I would say it's car wash. Because the car Wash fund has been able to grow and expand and we've launched six funds up to this point and we now have 28 locations getting ready to be 29 and we have, you know, several more on the horizon and we've now been able to, you know, continue those branding. And, and I, and I, Cameron Broom, who works as our managing partner on the car wash side, you know, he, he works in the same office as me. So like every week we're seeing each other, going to meetings and you know, having lunch together. And so I'm involved with that, you know, a lot more of the, of the day to day with that too because it is a lot more of a heavier lift than trying to, you know, just hire a third party to do, you know, self storage or multifamily or even hotels car wash. We had to vertically integrate with that.

Yeah, and that's a, that's a great point. You know, I always say like, you know, with apartments and you can get almost like an off the shelf operator, you can look in the phone book book. You know, you know, if people still know what a phone book is that are listening today, normally just go to Google, right?

It's called Google now, Chris.

Yeah, I know, it's like crazy. It's like we used to get that big thick phone book, right? God, God forbid it would like sit on the front porch and get rained on and then remember that.

I remember advertising in those things.

I know, I know, Yellow pages. So. Yeah, so you know, whether it's multifamily or self storage or you know, even hotels, you know, with Jason, it's a lot easier to find kind of off the shelf operators. Whereas, and you know, you, when you and I first spoke about car washes, I've, I go back, my uncle and I looked at these, geez, it was seven, eight years ago at this point. It's highly, it's highly intensive on the operational side. Highly you know, owned by mom and pops. So maybe you can tell a story about trying to find an operating group that made sense and, and why you started and stood up your own vertically integrated group. Group. Today's show is sponsored by Money Insights and their investment optimizer strategy. In my book, I share how I use the same strategy starting over a decade ago to invest my money in two places at one time. This strategy has been used by the wealthiest for generations for estate planning, minimizing taxes, preserving wealth and increasing stability for their investments. Now you can do the same thing. In addition, you can build a plan to build an emergency fund, pay for college, fund a business plan for retirement, and ultimately optimize your total financial picture. To find out more information, check us out at the banking link@nextlevelincome.com.

Yeah, so when we first learned about car wash, and I'm just going to tell you how I learned about car wash. That's kind of a fun story. So it was not even on my radar until my wife and I decided to take a trip to New York City. And we actually chartered a private jet and took some friends with us and decided to do that jet. We all dropped our kids off at school at like 7:30 when the doors open, went over to the airport, flew out to New York City and had a good time out there. Well, as we're leaving Columbia, South Carolina, we're walking to the plane. The pilot points to this other jet and it's like, it's like one of the fastest. It actually is the world's fastest business jet right now, even today, called the citation 10, the citation X. And he's like, do you know who owns that jet? You know, and I'm like looking at it, I'm going to. Am I supposed to know who this person is? Like, why are you even asking me this question? Like, I don't know who owns all these planes, you know, and, and so he's like, that's actually the local car wash guy. I'm like, you've got to be kidding me. And he's like, yeah, he's like, he washes over like 2 million cars a year. He's got 25 locations. And he's just crushing it. I'm like, wow. Like, I would never have thought that there was that much profitability in car wash. And that really opened up, you know, I would say guess you know, the, the Pandora's box of car wash and you know, investigation, trying to try to figure out is this an asset class that we could present to our Investors and open up. And so we started doing a deep dive on it. We spent 18 months doing some research on it, going to conferences, investigating and trying to figure out is there an easy push button to do car wash management. And there wasn't any. And so we had to figure out how to figure out a way to vertically integrate in the car wash space to bring in our own management company. And we were able to find Cameron. Actually, his, his wife is our director of marketing and pr, and he would come to all the events, the Christmas gatherings, some of the corporate events that we would put together. And you know, he would, he's, he's one of those people that is very unassuming because when you meet him, he's got this kind of little bit of a Southern, like, accent to him, a little redneck to him. And you know, he's, he, he's Southern, like.

Oh, he's full on, Full on southern. Yeah.

Oh, yes. Oh, yeah, for sure. So when you meet him, you don't think that. But he's got, he can, he can, you know, he's, he has a degree in mechanical engineering from Clemson and he's got, he can pretty much fix anything with his hands. And he also can do spreadsheets and manage people. And that's like a, a trifecta of like, wow. Like, it's very hard to find that kind of a person. And, and honestly, I didn't know that he was that good when we initially hired him. I initially hired him on because I knew he was mechanically oriented. I knew he needed somebody like that to be able to, you know, jump in and fix the car washes. But when we hired him on, he stepped up to the plate. He really, like, proved himself to us. And, and that's one of the, when we first hired him on, he, he was, he was just an employee of ours. Right? And quickly we learned that this, this, this person is much more than just an employee. And so we, we promoted him and, and got him into a, A, a managing partner role in the management company with us to be able to continue to oversee that, that, that line of business. And, and right now he's managing a little over like 200 employees across the 28 locations, getting ready to be 29 from Maryland down the floor and as far west as Huntsville, Alabama. So it's been, it's been, it's been a challenging time to be able to put all those different pieces and parts together. But, you know, we're, we're definitely in a position now where, where we're able to focus a lot more on the operational inefficiencies and some of the expense reductions and. And really even being able to compete with some of the competitors that are out there. There's one that I drive by, two of them, actually, that drive by every day and in town here in Columbia. And one of them is. Is one that stood up, one after we had bought ours, like less than a half a mile down the street. And they're suffering right now. Like, I. I just know they are because every time we drive by, there's like, you know, maybe four or five cars out front, maybe one in the tunnel getting washed. And, you know, yesterday that's how it was. And I drive by our site, we got 15 cars out front and three in the tunnel. And like, it's just it. We. Cameron has really done a great job of being able to maintain and kind of, you know, you know, grow the membership base in these different locations and, and really compete with the competitors there. But the operational side of things is definitely a. A comp that is very challenging in car wash. And you have to have people that are very mechanically oriented. And we have a. A good kind of core, solid team that Cameron actually, you know, brought together and said, hey, well, this person over here, I know he's mechanically oriented. He works with this other company. Let me, you know, see if he will come over here. And then. So he's basically like, pitched the idea of these different people that are good with their hands to come work for us. And when we have major issues and problems with the car washes, that team can get up, hop on one of our service vehicles and go and go, go, go fix that particular issue. Whether it's here locally in Columbia or all the Huntsville or Chattanooga, you know, they have the ability to go out there and really fix things. And we even have some people that we've been able to acquire with our car washes that can now do a lot of troubleshooting over the phone. Like they can just get on a phone call with one of them, with one of the service techs and walk them through how to fix something or reset something. And it's been. It's been a good, good process, but it definitely. The operational side of car wash is definitely a challenging piece to it.

Yeah. And you can learn more about that. Episode 110. Cameron joined us last year to talk about his experience growing the team. Also his. His. His engineering background, which obviously I'm a little bit of a fan of with. With the engineering side of things. But what's Interesting is that, you know, you see, and you know, you and I have had these conversations. Cameron talked about being like the Chick Fil a of the car wash business. And a lot of people like, yeah, car washes, you're washing cars. It's water, it's machines, it's chemicals, it's, it's not super complicated, but it's heavy on the people side of the business. As simple as it can be. And yeah, Cameron's done a phenomenal job with respect to that. And you know, if you think about going into Chick Fil a, just the, the pleasure of the experience, even though I know I can get a slightly better chicken sandwich if I go down the road for the, the value and how happy it makes the family and the kids when we go through there. It's pretty, it's pretty impressive. So I love that saying, hey, let's be the Chick fil a of the car wash business. That's a cool way to put it. It.

Yeah. I actually used to work at Chick Fil a matter of fact, I remember when sandwiches were like $3 and 50 cents.

I can, I can see you in that uniform, Dan. I can see you wearing those, those, those tight. What, what, what's the deal? Do they like ask your size and then give you one size, two small pants at Chick Fil a? What's going on with that? I'm like, everybody.

It's probably because it's kind of like asking somebody their weight. They tell you they got to add £15, you know, what size are you? Small. Okay, I'll get you a medium, you know, because I like.

Yeah, these are better.

They work at Chick Fil a know.

Well, I think part of it is you got all these high school kids, they're probably still growing when they issue them these, these uniforms.

That's true.

No, I love going there. Everybody's so polite. They're well dressed. All joking aside, it's, it's, it's fantastic. But we got to get to your book, Dan. So I got a chance to, to see an early issue of the book before it came out. And I know it's kind of grown a little bit off of, you know, the things that you've learned, you know, not as, not just as an operator, but you know, we mentioned in the, in the intro, you're looking at what, almost 90 syndications that you've been a part of now. So, you know, you have actually written this book with, with Danny Randazzo who's also a multi time guest on the show here for Investors so they can learn from things that you've learned along the way and even some mistakes that you made. Right?

Yeah. So I have a copy of the book right here in my hands. It's called Apartment Syndication. The Ultimate Guide for the Active or Passive Investor. And the important piece of to why we wrote that book is, you know, we don't. If you know anything about our group, we don't do any type of mentoring or coaching. You know what, we didn't write this book to be able to educate you to a point where you would spend another, you know, 30, $40,000 with us to learn how to do it. You can learn everything that you would learn for 30 or $40,000 right here in this book. Right. It's all here about what we do well for this would be, you know, for 30 bucks for. Yeah, for like 30. I think it's like 39.97 or something like that. So for 40 bucks you can learn it instead of putting $40,000. That's a good, that's a good talking point.

That's a good deal.

But I've seen so many books that were written around kind of real estate investing and specifically around apartment investing. And they make it out to be this very easy thing that everybody can do. And I don't believe that. And I wanted people to understand that in order to really monitor and not monitor, but really manage and take on outside investors money, I truly believe you need to be full time in the business. And so this book teaches you how to run the business like a business and treat it like a business, not as a side hobby. And I think it's all also important for passive investors that just want to be passive and say hey, here's my money. You do it that they learn what we do, how we do things. And in here it teaches you how to do it actively. But it's really also geared towards teaching passive investors what is actually involved when we actually present a deal to you. What have we actually done behind the scenes? And then it also, there's a section in here for the passive investor that goes in, into a deep dive on kind of the what, what we have done personally to build our portfolio up, how we vet operators. It has those eight red flags in there as well, the, the information in here about that, but also talks about, you know, 1031s and how those, how those work and, and how to use your self directed IRAs. And so it has a, it's a good book to be able to learn about the nuts and bolts about how the apartment syndication business works from the active side, but then also as a passive investor, how to set yourself up for success as well.

No, I think it's fantastic. And it, one of the things that scares me is when an investor says, oh, I trust you, just go do it. It's like, well, okay, I'm glad to hear that you trust me, but you should understand what's going on. And I think it's always, if you're listening and you're looking at making an investment, whether it's for the first time or whether it's into another asset class or with another operator, do your due diligence, pick up a copy of Dan and Danny's book, book, go through it. It will help you become a better investor even if you're not going to be an operator. And that's what I love about it as well. And you know, on that note, I know you guys have recently launched a new, it's called an alliance fund, I believe it is where you're, you're helping to partner with some of these operators that maybe they didn't follow all the same rules.

Yeah, yeah. And the primary reason that the alliance fund has been put together is to help investors, help help other operators in this current market environment not lose their assets. Because it gets to the point where right now with these interest rate caps that we talked about earlier, the, one of the biggest, you know, issues that their people are having right now, different operators, is that they, they bought a deal say maybe you know, two, three years ago and most of them will only put like a 2 year rate cap in place and then they can either let the rate cap expire and then they won't be able to afford the payments or they'll have to extend the rate cap cap which when you extend the rate cap right now the rate cap extensions are pretty expensive. So it could be multiple seven figures that it costs to be able to buy those rate caps. And even if they want to say, well let's instead of do that, let's put some fixed rate debt on it and refinance. Well, because of the way the interest rates are right now, the values go down. And so that means the LTVs are actually going to go lower because the, the DSCR goes up. And so the real question, so LTV.

Loan to value ratio ratio and DSCR is debt service coverage ratio.

Correct. And then the, the, the, I think most people understand kind of the LTV kind of terminology of, you know, you buy a 10 million dollar property, you're going to put 20 down so that LTV is going to be 80% right, that loan to value. But when it comes to the dscr, that's a metric that the lenders primarily use to determine how much cash flow is this asset spinning off to be able to pay the mortgage and how much excess will there be after they pay the mortgage. And that is 1.25, that 1.25x. So basically what 1.25, what a 1.25 DSCR does is it basically allows the lender to know, okay, they have 25% more cash flow coming in than they need to be able to pay the mortgage. They can pay the mortgage and still have 25% more left over. And of course they wanted that. Their minimum threshold is usually that 1.25. Now if you get a bridge loan, things like that, it can be lower because that's what those bridge loans are designed to do, is to have a lower DSCR as you're trying to stabilize an asset set, increase those cash flows and then you can exit from there. But that, that DSCR is a very important factor because if that DSCR drops below 1.25, well then you have, they will give you lower proceeds when you try to refinance to get that DSCR number back up to 1.25. Because the, the, the more money you take on, the higher the interest, higher the payments are every month. And so they're very, they're looking at that and not just if it's an interest only loan. They're not usually looking at it just as an interest only player. They're looking at it going O once the P and I, the principal and interest and the principal starts getting paid along with the interest. What's that? Dscr. And so they'll also look at that number as well to determine kind of how much they're going to lend. And so basically what that creates is it creates a problem for these operators because they have to come to the table with additional money whether they're going to do a refinance or they're going to do the interest rate cap extensions. And they many times can't afford to do that. And so we have basically almost every single week right now I'm getting phone calls from different operators that need some assistance. And so we have been able to put together a fund called our Line Alliance Fund that will allow us to be able to invest in these different operators. And we have this particular fund is a preferred return fund that has three different classes of shares. There's an 11A12 and a 13 preferred return with this particular fund and then there's a 50, 50 split after that on the promote or what is being split between you as the investor and us as the operator. With the projections on this fund being between about 20 to 30% IRR. And there is a large range there because it just depends on, on, you know, each one of these asset classes that we invest in and how much GP ownership that we can negotiate when we go and go to the table to try to, you know, place this additional capital. But we will be in a great position in the capital stack because we'll be positioned as preferred equity right after the debt and it'll. And so that helps to mitigate some of our downside risk because before any of their investors get their money back or any return, we get our money back and our return first and then their investors get that, that, that return. But the goal is to have this fund be active for about three years, which we believe timeframe for us to be able to invest in some of these different operations and then exit as the market starts to turn around over the next one to three years.

Excellent. So, Dan, unfortunately we gotta wrap up, but we're definitely going to be having you back on here in the near future. What's the best way for listeners to connect with you? And we're going to have links for your website. We're going to have links for your new book here in the show notes as well.

Sure, yeah. The best way to kind of reach out to us is two ways. One, you can go to passiveinvesting.com and do some research there about us. There's also a form on there that you can join our passive investor club if you'd like to. You can also connect with me on LinkedIn where I produce some content there and you can just go to linkwithdan.com and that'll bring you straight over to my LinkedIn profile and you can connect with me further there.

Awesome. Dan, thanks as always for joining us today and sharing your experience, your wisdom and some of your stories here with the audience.

Yeah, happy to do it. Thanks Chris, Chris, for having me back.

Hey Chris, here again. I hope you found this episode back valuable. Now I have one more thing to give to you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple Podcasts.